Development and Sustainability at BIO
The private sector is crucial to achieving long-term, inclusive, and sustainable economic growth. It is responsible for over 90% of jobs in developing countries as well as for local value added, innovation, the provision of valuable goods and services, and tax revenue.
When looking at creating positive impact, the private sector is key in realising the Sustainable Development Goals by 2030, and actively contributes to mitigating poverty and reducing inequalities.
Private sector development is a great way to have scalable, long-term impact, especially with respect to climate change.
The Belgian Investment Company for Developing Countries is Belgium’s DFI. Fully owned by the Belgian State, it is a central instrument of Belgian foreign policy, and the Belgian development cooperation objectives and principles. Testimony to this is our commitment to Africa, to reducing inequalities, to adopting a human rights based approach, to SME support, to the fight against climate change, and recently our commitment to support Ukraine. By primarily focusing on micro, small, and medium-sized enterprises (MSMEs), BIO actively contributes to promoting sustainable human development in low- and middle-income countries.
BIO’s ambition is to support its clients to steer capital towards the low-carbon, resilient and ecological transition as defined in the Paris and Kunming-Montreal Agreements on climate and biodiversity. This is expressed in 3 priorities:
- Ensure the alignment with long-term climate & ecological sustainability
- Mainstream climate and ecological sustainability in BIO’s investments
- Increase investments in climate and nature-positive projects
Evolution of new commitments
In 2023, BIO committed to provide funding up to €195 million in 22 projects, most of which in sub-Saharan Africa and Asia.
Below all projects that were signed in 2023.
Aiming to maximise development impact, BIO assesses in which domains – gender, decent work, the fight against climate change, the promotion of basic services to the population, etc. – an investment project has high development potential. BIO then collaborates closely with sponsors to prioritise these aspects during project implementation.
It carefully assesses a client’s potential economic, social and environmental challenges, and proposes measures to mitigate these, with clear milestones for improvements over time. Additionally, BIO offers expert advice and technical assistance to enhance business management, performance, sustainability, and overall development effectiveness of its projects.
Since its establishment in 2001, BIO has assessed, monitored, and evaluated the developmental outcomes of its portfolio companies. At the heart of this endeavour lies BIO's Theory of Change (ToC), a comprehensive description and illustration of how and why a desired change is expected to happen in a particular context. The ToC is currently under review to align it with the content and structure of the Management Contract, covering the years 2024-2028.
BIO’s current ToC offers an integrated approach, encompassing economic, social, and environmental development facets, while aligning strategically with the SDGs.
The ToC uses key performance metrics to capture BIO's contributions to the SDGs. It also serves as a guide to BIO's Development Assessment, Monitoring, and Evaluation (AME) framework.
This process of impact measurement and sustainability practices undergoes continual harmonisation with other European DFIs and impact investors. It illustrates BIO's contribution to the 2030 Agenda, and to the Belgian State, the development community, civil society, and the wider public, all of whom are stakeholders.
Theory of Change and the SDGs
BIO’s Theory of Change provides a comprehensive description of its contribution to the 2030 Agenda. Although the SDGs are not perfect and are sometimes difficult to quantify, they are the reference and guidance for BIO’s development mission because they represent the global agreement on what we all strive for in terms of a better world for all.
BIO’s ToC outlines the links between inputs, outputs, outcomes, and (expected) development impacts. It uses this framework to contribute to a world without poverty, where economic growth is inclusive and jobs are sustainable, in line with SDG1. BIO’s clients are expected to contribute to a number of SDGs. They can reduce gender inequalities (SDG5), provide affordable and clean energy (SDG7), create decent work and economic growth (SDG8), build innovative industries and infrastructure (SDG9), work on social inclusion (SDG10), or practise good environmental standards for responsible production and consumption (SDG12). These are priority goals for BIO and sustain most of BIO’s activities and departments. By supporting climate change mitigation and adaptation, BIO also contributes to SDG13, which has become one of the key pillars of the new 2024-2028 ToC.
Other SDGs may be relevant to BIO and its clients, but are dealt with more indirectly. For instance, our investments in the agricultural sector contribute to SDG2 and, more transversally, by ensuring that clients comply with BIO’s E&S policy, BIO also contributes to good health and wellbeing (SDG3), to the protection of the oceans and marine resources (SDG14), and to the conservation and sustainable use of terrestrial and other ecosystems (SDG15).
About OPIM
BIO is a signatory to the Operating Principles for Impact Management (OPIM). This is a framework to ensure that impact considerations are integrated throughout the investment lifecycle. The principles draw on emerging best practices from a range of asset managers, asset owners, asset allocators, and development finance institutions. At the start of 2024, OPIM had 183 signatories from 40 countries and covered total assets of USD 529.2 billion.
BIO actively works together with the Belgian development ecosystem, such as the Belgian development agency, Enabel, the Directorate General for Development, and civil society. It collaborates with fellow European Development Finance Institutions through EDFI, and mobilises funds from the private sector (SDG17) through the SDG Frontier Fund.
Established in December 2019 at BIO’s initiative, the SDG Frontier Fund is a closed-end, self-managed private equity fund of funds that invests in SMEs across sectors in frontier markets of Africa and Asia in order to promote sustainable economic growth. It has a total fund size of EUR 36 million. At the end of 2023, the SDG Frontier Fund participated in eleven funds active in Asia and Africa, indirectly supporting 98 investees - well on its way to exceed the original objective to support a total of 100 SMEs.
- Development ex ante assessment tool – As part of the due diligence, this tool allows to structure and document the SDG development rationale of a given investment project, and its financial and non-financial additionality.
- Monitoring Tool – Yearly monitoring of key development metrics (pre-defined to reflect the envisaged development goals) for all portfolio projects – and Joint Impact Model (JIM) – Economic modelling to assess indirect effects.
- External Case Study Evaluation (ECSE) – Annual independent in-depth development effectiveness evaluation of a sample of ongoing or exited projects.
- Project Completion Tool – Ex post review and summary of a project’s main achievements (including business, finance, development, and E&S) and key lessons learnt that will be used to improve operational and strategic investment decisions, as well as operational processes.
While there is some interdependence between these, each tool follows its own procedure and addresses specific needs at different stages of the investment process.
The toolset is regularly updated to ensure continuous improvements in the fitness for purpose of the AME framework.
All investments by BIO and the SDG Frontier Fund pass through a similar cycle. Upon identifying a potential investment opportunity, BIO assesses its alignment with the overarching investment strategy and its adherence to the prescribed investment conditions. If the criteria are met, a comprehensive due diligence exercise ensues, scrutinising the project's governance, commercial viability, and financial aspects.
BIO also identifies environmental and social risks and opportunities, working closely with its clients to unlock the full development potential of the project. This development aspect is thoroughly discussed from the outset, ensuring a shared vision between BIO and its investees.
Together, BIO and its investees establish a clear understanding of the expected development impacts, identifying areas where technical assistance may be required.
About JIM
Using input data such as revenue and power production from portfolio investments, the Joint Impact Model enables to estimate financial flows through the economy and its resulting economic (value added), social (employment), and environmental (greenhouse gas emissions) impact. These estimates can be used to measure and report on the contribution of individual institutions to the UN Sustainable Development Goals and the Paris Agreement.
The JIM is characterised by its harmonised and transparent methodology and assumptions, public availability, collaborative nature, up-to-date macroeconomic statistics, security features, and user operated style.
At the end of 2023, the Joint Impact Model (JIM) Foundation launched JIM 3.0, designed to empower multilateral development banks and DFIs like BIO with enhanced features and capabilities, like updated macroeconomic data and statistics.
BIO uses JIM to estimate indirect development impacts of its portfolio companies (impacts along the company’s value chain and induced impacts, i.e., impacts associated with the spending of wages earned by employees of the company), and the financial and power enabling impact of the financial intermediaries and the infrastructure projects BIO invests in.
About ECSE
The External Case Study Evaluation is an annual, independent, thorough assessment of a sample of ongoing or completed projects, to explore the developmental effectiveness of BIO's interventions. This evaluation typically centres on a specific theme, sector, or region, and uses desk research, surveys, interviews, extensive field visits, and reality checks to ensure comprehensive and accurate assessments.
In 2023, the external evaluation focused on BIO’s contribution to decent work for all, while in 2024, it will assess how BIO promotes non-financial additionality.
The IFC Performance Standards are the key reference when assessing BIO’s clients’ E&S performance. They cover a comprehensive array of environmental, social, and human rights topics. Each standard describes the desired outcomes and the specific requirements to help clients achieve them. They also allow to identify new opportunities that may help clients to sustainably expand their business and improve their competitive advantage.
By adhering to the IFC Performance Standards, BIO's clients are guided in responsibly managing their environmental and social risks, addressing crucial topics such as:
BIO classifies its investments based on their associated environmental and social exposure. Categories A, B+, B, and C respectively represent projects with high, medium-high, medium-low, and low potential impact. For more daunting projects, BIO collaborates closely with its clients to define appropriate environmental and social actions, subsequently monitoring the outcomes of these efforts.
BIO engages with (prospective) clients to enhance their E&S performance, with its E&S team offering advice, appropriate tools, and assistance in developing E&S action plans.
In line with its commitment to E&S management, BIO requires that an E&S action plan (ESAP) is part of all its investment contracts. Almost all of these incorporate measures related to E&S risk management (IFC - PS 1), with more than half encompassing actions addressing labour conditions (IFC - PS 2). For high-risk projects (A and B+), on-site visits are conducted by BIO and/or external experts to verify reporting and conduct independent assessments. Annual progress reports on the ESAP's various measures and actions are submitted by clients, showing the extent to which they remain on track.
ESAP implementation progress
Out of the 67 active projects signed after 2018 and actively monitored by BIO’s E&S team, 63 have an E&S action plan. The majority has already been implemented and completed or is on the right track to do so, whereas for 30% of the action plans, implementation has been delayed.
If insufficient progress is noted, BIO talks to its clients to identify the challenge, and to see how they can catch up on the ESAP's execution.
BIO is committed to supporting its clients’ E&S capacity and competences, providing assistance through the BDSF or by offering guidance and training sessions led by BIO staff. Companies posing a higher reputational risk or companies in non-compliance with essential actions outlined in their ESAP are placed on an E&S watchlist, prompting intensified monitoring by BIO's E&S team. At the end of 2023 six projects were on this list, out of a total portfolio of 146.
We provide grant resources to incentivise our clients to work on improving their sustainable practices and support them becoming examples in their sector.
As international certifications such as Fairtrade, Forest Stewardship Council, ISO or Organic can be instrumental in reaching a company’s objectives, grants from the BDSF can help clients obtain them. Alternatively, technical assistance and feasibility studies may be used to finance gender equality programmes, to create green financial products, to implement best lending practices, and develop client protection measures for the clients of microfinance institutions. To ensure an alignment of interests and maximise a project’s chances of success, BIO always requires clients to bear part of the costs of the subsidised activities.
The BDSF has an annual budget of EUR 2 M. Over the past five years alone, it has approved co-financing for 75 projects, amounting to EUR 5.7 M. Notably, in 2023, 16 projects were approved for a total amount of EUR 1.2 M.
TA, FS and TAF
Technical assistance improves a company’s economic, social, and environmental impact by co-financing pivotal initiatives, such as the development of an environmental and social action plan, the digital product innovations for microfinance institutions, or the establishment of a business training centre for a bank’s SME clients.
Feasibility studies play an indispensable role in analysing the technical viability and profitability of an investment project. These studies may range from an environmental and social impact assessment for a new solar project to a comprehensive market and technical analysis for an agribusiness venture.
Technical assistance facilities are created by funds to pool the contributions of their investors and make them available for their clients. They are the indirect equivalent of direct technical assistance and feasibility studies.